Statesman or sellout? David Cameron's euro challenge

David Davis has a knack for getting up David Cameron's nose. His intervention on the Today programme has narked No 10, and they are being firm in their response. Specifically they reject the idea that it would be in some way illegal for the Germans and French to engineer a deal of the 17. HMG accepts that an arrangement that was limited to fewer than the 27 would be within the rules (they point to the European Stability Mechanism, or even Schengen, as examples of <27 deals). As a former Europe minister, DD should know that, they point out. And if the eurozone chooses to go the E17 route, officials say, the UK response will be robust. "We will make life difficult for them," I'm told, by reminding them that European institutions – Commission, ECJ – must continue to serve the interests of the whole EU.

But No 10 stresses that the Franco-German preference is for a deal at 27, and Britain will encourage them in that direction. Angela Merkel stressed to David Cameron in Berlin that she wanted Britain to be part of the deal to keep the rest honest on trade and competition. Tory backbenchers will be surprised to hear that Downing Street believes that what France and Germany have proposed so far does not pose a significant threat to the UK.

Mr Cameron would say that he is is clear: he will not approve a deal unless he gets something in return, specifically some kind of explicit guarantee to protect the interests of the City. But we should note the a caveat that softens the hard line: Mr Cameron will be tough within the realities of the situation he finds himself in. He considers that the paramount priority is sorting out the euro, to avoid a disaster for Britain. "He is not going to be soft, but there is a clear and present danger to our economy," a source says. Indeed, George Osborne has just told the Lords that a euro collapse would cause considerable damage to the economy. Despite the brickbats that have rained down on him since PMQs, Mr Cameron remains unmoved. He is going to Brussels to concentrate on two priorities: saving the euro from disaster, and protecting the City. To that end he is prepared to defer all other considerations, including satisfying his own side. Statesman or sell-out? We'll only know when we see the detail of the deal.